Natural resource endowments more a curse than blessing for developing nations

Irish Examiner

2 days ago

The world's superpowers have developed a seemingly insatiable appetite for the critical minerals that are essential to the ongoing energy and digital transitions, including rare earth metals (for semiconductors), cobalt (for batteries), and uranium (for nuclear reactors).
The International Energy Agency forecasts that demand for these minerals will more than quadruple by 2040 for use in clean-energy technologies alone.
However, in their race to control these vital resources, China, Europe, and the US risk causing serious harm to the countries that possess them.
As it stands, China is leading the pack — having gained ownership or control over an estimated 60-80% of the critical minerals that are needed for industry (such as for magnets) and the green transition. This control extends across the supply chain: China is heavily invested in mining across Africa, Central Asia, and Latin America, and has been building up its processing capabilities.
For Western powers, China's quasi-monopoly over critical minerals looks like an economic and national-security threat. This fear is not unfounded.
In December 2024, China restricted exports of critical minerals to the US in retaliation for US restrictions on exports of advanced microchips to China.
Since then, US president Donald Trump has forced Ukraine to relinquish a significant share of its critical minerals to the US in what he presents as repayment for American support in its fight against Russia.
Trump also wants US sovereignty over mineral-rich Greenland, to the dismay of Denmark. He has suggested that Canada, with all its natural resources, become America's 51st state.
The EU, for its part, has sought its own mining contracts such as in the Democratic Republic of the Congo (DRC) — touted as the 'Saudi Arabia of critical minerals.'
From the Scramble for Africa in the 19th century to Western attempts to claim Middle Eastern oil in the 20th century, such resource grabs are hardly new
They reflect a fundamental asymmetry: Less industrialised developing economies tend to consume fewer resources than they produce, whereas the opposite is true for developed economies and, nowadays, China.
In principle, this asymmetry creates ideal conditions for mutually beneficial agreements: Industrialised economies get the resources they desire and non-industrialised economies get a windfall, which they can use to bolster their own development.
However, in reality, vast natural-resource endowments have proven to be more of a curse than a blessing, with resource-rich countries often developing more slowly than their resource-poor counterparts.
A key reason for this is that developed economies have more economic clout, advanced technology, and military might — all of which they bring to bear to acquire the resources they seek.
For example, European imperial powers used steam-engine technology to help them explore and exploit Africa for resources such as copper, tin, rubber, timber, diamonds, and gold in the 19th century.
Fair compensation
This — together with more advanced weaponry and other technologies — meant that, far from offering local communities fair compensation for their valuable resources, European powers could subjugate those communities and use their labour to extract and transport what they wanted.
However, even countries that are exporting their resources for a profit have often struggled to make progress on development, not only because of imbalanced deals with more powerful resource importers, but also because their governments have often mismanaged the associated bonanzas.
It does not help that resource-rich countries and regions often grapple with internal and external conflicts.
Consider the mineral-rich provinces of the DRC, such as Katanga and North Kivu, which have long suffered from violence and lawlessness, fuelled by neighbors such as Rwanda and Uganda.
Today, the advance of the Rwanda-backed M23 rebels is fuelling bloodshed in eastern Congo, and creating an opportunity for outside powers to gain access to critical minerals. The DRC-Rwanda peace agreement brokered by the Trump administration promises precisely such access to the US in exchange for security guarantees.
The resource curse is not inescapable, especially for countries with strong outward-facing institutions to manage the economy's external relations, including its resource sector's ability to attract investment and generate revenues for the state, and inward-facing institutions to govern how those revenues are used.
If a country is to translate its resource endowments into economic development and improvements in human well-being, both have a critical role to play
Outward-facing institutions must negotiate fair and transparent mining contracts with multinational corporations and strengthen local governments' ability to do the same.
Such contracts should include local-content requirements, which keep more high-value-added processing activities at home, increase local employment, and strengthen the capacity of local suppliers and contractors.
Since acquiring a 15% stake in De Beers, Botswana has sought to ensure that diamond cutting — not just mining — occurs domestically, which requires inward-facing institutions to deliver adequate investment in these capabilities.
Inward-facing institutions must also manage risks raised by resource extraction, from health and environmental damage (deforestation, biodiversity loss, pollution) to labour rights violations (including child labour). Unfortunately, as it stands, many mineral-rich countries are falling far short, leading some to advocate boycotts of critical minerals coming from conflict zones or countries using forced labour.
While such boycotts are unlikely to sway these governments, they could convince multinationals and foreign states to demand better enforcement of environmental and social standards from countries they deal with.
Ultimately, it is up to mineral-rich countries to defend their interests and make the most of their endowments. This starts with strengthening institutions.
Rabah Arezki, a former vice president at the African Development Bank, is director of research at the French National Center for Scientific Research and a senior fellow at Harvard Kennedy School. Rick van der Ploeg is a professor of economics at the University of Oxford and professor of environmental economics at the University of Amsterdam.
Project Syndicate, 2025
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